Attempting to acquire share of freehold from other leaseholders - what are my rights?

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    Attempting to acquire share of freehold from other leaseholders - what are my rights?

    Hi there - first time buyer / first-time poster so please forgive me if this is in the wrong place (I've scoured the existing forum posts but can't find anything that speaks to my precise circumstances).

    In Jan 2019 we acquired a leasehold flat in a London Victorian terrace. 91 years left on the lease, two other flats in the building. The freehold was purchased by the two other leaseholders in the building in late 2017 (from an apparently unscrupulous prior freeholder; I believe through collective enfranchisement), about a year before we purchased the flat and entered the picture. They are managing the freehold via a company with equal shares / directorship.

    We are weighing up whether to buy a share of the freehold. The existing freeholders are keen to sell off the share, but are charging as follows:

    (Valuation of the share of our flat that was originally carried out when they purchased the freehold in 2017 = £17k) +
    (a 1/3 share of the legal costs they incurred when purchasing the freehold in 2017 = around £3k) +
    (an additional premium of around £1200 for the 'time and energy' they expended acquiring the freehold in 2017)

    ...all of which comes to around £23k; about £5k over the 2017 valuation of the share of the freehold for our flat.

    Very grateful for any advice:

    1) Does the cost breakdown above look reasonable? I'm unsure whether it's fair that we should be expected to cover a share of the freeholders' legal fees incurred through a historical transaction that had nothing to do with us - particularly as we will be incurring our own fees purchasing a share of freehold now. Is it correct that we have no legal recourse to influence what the freeholders can charge for a share? As collective enfranchisement is off the table, does it follow that we have zero leverage?

    2) When leaseholders in a building collectively purchase the freehold, is it expected that they contribute payments proportional to the value of each of their individual flats/leases? We are being asked to pay a higher value towards a share of freehold than either of the existing freeholders on the basis of a valuation (disaggregated by individual flat) that was originally carried out when they collectively purchased the freehold in 2017. My understanding is that the freehold is a single entity pertaining to the entire structure of the building + the ground it's built on, so I'm struggling to see why individual flats should pay proportionately different amounts for shares - surely the shares / costs should be split equally as ownership is collective? (I should mention that the freeholders have suggested that if we purchase a share, all the leases in the building can immediately be extended to 999 years for no premium - so perhaps the proportional value they are asking us to pay for a freehold share is to compensate for the earnings potentially lost via the waived leasehold extension premium on our flat - is that possibly correct?)

    3) If we reject the terms outlined above and decide instead to request a lease extension (after the 2 year minimum), do the freeholders have any means to 'punish' us for deciding not to buy a share of the freehold by slapping on an excessive premium? Or is the premium that can be charged always linked to a professional valuation (if it came to a legal dispute)?

    Many thanks for your time.
    Z




    #2
    To me it seems reasonable. They are justified in asking for a share of the cost of acquiring the freehold. Is it worth getting a valuation of the increase in value for your flat with a share of the Freehold ? How much did you save on the purchase price ?
    do make sure you build good relationships with the other two. If you buy a share there is the risk of it being 2v1 which could leave you in a poor situation.

    Comment


      #3
      What was the total cost to buy the freehold title in 2017 ? What annual ground rent are you paying now ? When is the next ground rent increase ?

      Comment


        #4
        What are your rights?
        In this case, I don't think that you have any.

        If the freehold is owned by the other two leaseholders, out of three leaseholders in total, there is no statutory process that you can follow to force the other leaseholders to sell you a share of the freehold. They can voluntarily sell you a share, but that will be at whatever price they want, and they can justify the price pretty much however they want.

        If you wish to extend the lease on the property, and remove the requirement to pay annual ground rent, you should look at how much it would cost for a statutory 90 years lease extension (reducing the ground rent to 'a peppercorn'). If your ground rent is due to double to £600 in four years, and will double again to £1200 20 years later, it is likely that a statutory lease extension will cost you at least the £23,000 you are being asked to pay for a share of the freehold.

        Comment


          #5
          Broadly speaking, the offer they have made seems pretty fair to me. You will possibly end up paying very slightly more than you may have paid should the freehold be valued today, but I think their justifications are fair, and like others say, if you don't take their offer, you have no way of obliging them to sell to you. I think you're lucky they are being so reasonable as others might charge more.

          You won't want to be paying £600 a year ground rent either down the line, so get your share while you can.

          Comment


            #6
            I dont see how you get to £23K

            £17k share of the freehold price
            1/3 of the legal costs of £10.5k = £3.5k
            Contribution for time and effort in acquiring the freehold + £1.2k

            Total £21.7K

            Comment


              #7
              They are being wholly reasonable

              You have no rights to purchase a share of the freehold

              The amount the other two lessee paid for your flat's share of the freehold was £17k some three years ago and they have had only £300 per annum since then as a financial reward for having to carry that investment . They are not seeking anything more than reimbursement of their outlay plus £1200 for the time and aggravation. If they incurred £10.5k in legal costs it suggests there was aggravation and a lot of time and effort put in on their part

              If you seek to knock them down on the price they may feel used and this would not get your relationship on the future management of the property off to a good start

              Comment


                #8
                The total cost to buy the freehold in 2017 was £48,700 + £10.500 = £59,200 paid by the 2 flats and just getting £300 or £600 = 1% yield.

                So instead of receiving 1% for next 20 years, its really better for them to sell you a third share at £20K. and reduce their cost of 1/3 rd share to £20K each.

                So I suggest you consider a counter offer at £20K for 1/3rd share with offer to pay the legal; cost of BOTH sides.

                Before you decide, ring around some local solicitors to quote you , ( 1) cost of conveyancing plus (2) cost of extending 3 leases to 999 years.



                Comment


                  #9
                  Logically they should be motivated to sell but they may feel aggrieved that having done all that work in acquiring the freehold that someone else comes along afterwards and gets to enjoy the benefits at a discount.

                  At the time they purchased the freehold the non-participators share would have cost them the discounted value of the rent plus 1% of the value of the flat (at 95 years the discounted value of the reversion at 5% is around 1%) . Today with 91 years its around 1.2% of the value of the flat plus the discounted value of the rent. With the rent review now being 4 years sooner that discounted value of the rent will have risen. The freeholders should expect to get more than they paid because of that (unless property prices have fallen), yet they don’t seek more. Therefore they really have been very reasonable in not seeking an increase and would probably feel aggrieved if having done all that work they get nothing but a small loss being offered to them.

                  A doubt that a statutory lease extension will be cheaper and if it was any savings would be minimal particularly when you factor in all the professional fees. Doing a deal on the terms they have offered with no valuation fees and just the legal fees of a non-contentious transaction should save significant costs compared to what you would pay if you went down the statutory route.

                  Comment


                    #10
                    Originally posted by zccad20
                    Thank you sgclacy for that valuable, comprehensive input! I can see now that their terms are in no way unreasonable.
                    Thank you.

                    What is sobering that on a purchase of a freehold where marriage value is not relevant (and that is really the main contentious point in an enfranchisement claim ) that the legal costs amounted to some £10.8K

                    Comment


                      #11
                      Originally posted by sgclacy View Post

                      Thank you.

                      What is sobering that on a purchase of a freehold where marriage value is not relevant (and that is really the main contentious point in an enfranchisement claim ) that the legal costs amounted to some £10.8K
                      Sound to me like a tribunal was involved?
                      To save them chiming in, JPKeates, Theartfullodger, Boletus, Mindthegap, Macromia, Holy Cow & Ted.E.Bear think the opposite of me on almost every subject.

                      Comment

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